SHOULD I BE WORRIED IF I AM UNABLE TO MEET MY DEBT OBLIGATIONS IN LIGHT OF COVID-19
COVID-19 needs no introduction due to its wide spread impact on individuals and businesses. The law attempts to remedy the effects of COVID-19 on individuals and businesses with regards to payments of existing debts. The law terms a situation such as COVID-19 as a force majeure.
Force majeure can be described as an act of God or man that is unforeseen and unforeseeable and out of the reasonable control of one or both of the parties to a contract, and which makes it objectively impossible for one or both of the parties to perform their obligations under the contract.
These obligations include the payment of bonds, policies, insurance, credit agreements, overdrafts, leases and acknowledgement of debts. Some contracts includes a force majeure clause which normally include the following:
- A list of events which would constitute a force majeure;
- The requirement that the party who intends to invoke the force majeure clause must tender the other party with written notice of his or her intention;
- A time period in which the agreement can be terminated by either parties with no legal ramifications thereto for any loss arising if the force majeure extends beyond the stipulated period.
In this case it will exclude both parties from performance in the foreseeable future due to the force majeure, each contract may however contain different wording.
The common law principle of ‘supervening impossibility of performance’ will apply to contracts which don’t have a force majeure clause. The principle in essence is as follows:
- The impossibility must have arisen after the date of the conclusion of the contract;
- The situation must be unavoidable and make due performance objectively impossible, not merely make performance more economically onerous or burdensome;
- If performance is deemed to be objectively or absolutely impossible, the obligations in terms of the contract are extinguished and thus performance need not be tendered;
- If the event causing the impossibility can be deemed as foreseeable and avoidable the parties are precluded from relying on this principle;
- Once the force majeure has come to an end and performance is possible the contract will continue its normal course.
Businesses and individuals should seek legal advice before not honouring contractual obligations due to issues related to the COVID-19 outbreak as improper termination can lead to costly implications.
In terms of financial assistance, the banks as well as Government are providing financial assistance to clients and businesses. Contact your financial institution for guidelines hereto.
If the above payment holidays do not place you in a position to meet your obligations there are two further avenues of recourses, for individuals they can approach a debt counsellor and for companies, business rescue. As a temporary reprieve consumers and companies are implored to approach their respective creditors including landlords in order to reach consent on a realistic payment plan in light of COVID-19.
In conclusion debtors should not fret over these repayments. With the support from the State and the banks it is not all doom and gloom for debtors. A further reprieve is that for those that litigation is too costly an avenue, precedent from similar cases shall be set and could see the complete retraction from normal enforcement.
Burden Swart & Botha Attorneys are consistently staying educated with the law as it is changing in light of COVID-19 and can serve your legal needs, with compassion and excellence, be it COVID-19 related or not. Please don’t hesitate to contact us, we are here for your peace of mind.